Start Date

11-12-2016 12:00 AM

Description

We study platform owner’s decision to enter the market complementary to its platform with its own rival complement, and the consequences of such an entry on complementors’ innovation behavior. We ask: if a platform owner like Google releases an app for its Android platform, does it keep app developers from innovating in the future? We investigate two mechanisms that suggest entry to stimulate complementor innovation: a racing effect, which prompts affected complementors to innovate due to "red queen" dynamics, and an attention spillover mechanism, which suggests increased innovation to result from spill over consumer demand and feedback to same-category complementors. We exploit Google’s entry into the Android market for photography apps in 2015 as a natural experiment. Our difference-in-differences analyses of time-series data on a random sample of 6,620 apps suggest strongly positive effects of entry on complementary innovation—further analyses lend support for the attention spillover effect.

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We study platform owner’s decision to enter the market complementary to its platform with its own rival complement, and the consequences of such an entry on complementors’ innovation behavior. We ask: if a platform owner like Google releases an app for its Android platform, does it keep app developers from innovating in the future? We investigate two mechanisms that suggest entry to stimulate complementor innovation: a racing effect, which prompts affected complementors to innovate due to "red queen" dynamics, and an attention spillover mechanism, which suggests increased innovation to result from spill over consumer demand and feedback to same-category complementors. We exploit Google’s entry into the Android market for photography apps in 2015 as a natural experiment. Our difference-in-differences analyses of time-series data on a random sample of 6,620 apps suggest strongly positive effects of entry on complementary innovation—further analyses lend support for the attention spillover effect.